Can we all just admit this now, forty months into the Obama administration? Our economic policy mix isn’t working. Today’s job numbers for June just underline the bitter truth. We’ve spent more money and printed more money in the last 40 months than in any comparable period in American history, and what we’ve got to show for it is a flabby, out of shape recovery that the IMF warns could be heading for a new recession.
There are those who say we need to print much more and spend much more to get the economy going again, and those who say that doing that will just get us deeper in the hole with nothing more to show for it. The likely result of this impasse is that we won’t do what anybody recommends, but bumble along instead halfway between the two extremes, hoping something turns up. And if we’re lucky, which I think we probably will be, the politicians won’t do the equivalent of pouring sugar in the gas tank by failing to resolve the budget and tax crunch coming at the end of the year. That’s not a solution; it just means we won’t deliberately drive our car into the ditch.
The Europeans, the Chinese, the Japanese and the Indians also look pretty stuck. None of them really seem to have clear solutions for the problems they face, and even if a clear solution emerged, it’s hard to see them summoning up the political will for big change.
A couple of quick observations, not to be mistaken for stock tips about all this:
- The world’s economy and its financial system have become more complicated than our economists, our politicians and even our businessmen understand. Economic theory is not an abstract, theoretical science. It is an empirical one; what we know about economic policy is the result of centuries of trial and error experiment. The world economy has climbed a wall of failure for hundreds of years: each breakdown, each impasse forces us to come to grips with a new and more complicated set of dynamics. That’s what’s happening now.
- This time it’s going to be harder than usual to figure things out. Too many dynamics have changed. IT is transforming both financial markets and the real economy. The rise of new economic powers with different agendas is changing the way the world works — think about the impact of those huge savings pools in Asia and the Gulf. The pace of change has accelerated, and that means the economy is changing faster and economic policy ideas are becoming outmoded faster than ever. Get used to it.
- The world’s political institutions are as challenged as our economic policy ideas and tools. The Europeans haven’t figured out how to govern themselves and show no signs of resolving their problems anytime soon. India’s political impasse looks to be getting deeper. China has not yet figured out how to reform its system without a general meltdown and each year the social and political stress becomes greater and harder to manage. The US has the best constitution and political culture of the lot, but this, clearly, is not our finest hour. No political system can work very well when nobody really knows what to do.
In American politics, we seem to be back to 2004. We have a president who doesn’t, on the basis of performance, deserve re-election, and a challenger who hasn’t yet demonstrated that he would be better. Senator Kerry never managed to change that; in the end Americans in 2004, ready as they were to dump President Bush, decided that the incumbent was the lesser of two evils. Governor Romney, so far, hasn’t done much better than Kerry. He still has time to change that dynamic, but if he doesn’t, this really will be 2004 all over again, and the public will decide between two candidates that a majority would prefer weren’t in the race at all.
Economies do tend to turn around at some point. People all over the world want to make money, and in spite of all the obstacles in their path, they will keep hustling and bustling until something works. Among other things, this particular economic patch is bad because between 1984 and 2007 this country had one of its longest periods of prosperity ever with only a couple of short blips of turbulence. After a smoother than average ride for 23 years, it isn’t, from a historical point of view, all that surprising that things have slowed down.
Nevertheless, the whole world today is watching the very public failure of its economic and political leadership. The longer this continues, the more people around the world will turn to new and non-mainstream ideas. Some of them may turn out to be exactly the kind of brilliant and innovative new ideas that can make life much better; some will certainly be old, bad ideas that bring ruin and blood.
Let’s hope for better news from the jobs report next month.